Leveraging Market Intelligence to Better Manage Supply Chain Risk

1. It’s time to really see
your supply chain.
Leveraging Market Intelligence to Better Manage Supply Chain Risk
A LexisNexis® White Paper
Overview
Supply management professionals at companies
in a wide range of industries are increasingly facing
the daunting challenge of improving compliance and
proper certifications of suppliers throughout their
supply chain with the need to reduce costs. It’s a
vexing dilemma and, unfortunately, one that can
often lead to supply chain disruptions when a problem
flares up with a key supplier that was cutting too
many corners, out of compliance with safety
regulations or suddenly shut down because they
couldn’t make payroll.
The good news is there are emerging business
information tools now available to supply management
professionals that can help them closely monitor their
key suppliers and create an “early warning” system
for potential supplier risks. This information allows
businesses to better anticipate and manage risks to
the supply chain, reducing the chance they will suffer
business disruption, legal consequences or damages
to their brand caused by a lack of visibility into
supplier risk.
Risks to the Supply Chain
For companies in virtually any industry that requires
the manufacturing of goods, supply chains are the
lifeblood to economic success. In recent years,
supply chains have become more complex and
larger as the drive for efficiency has led to increased
outsourcing, sub-contracting and the search for lowercost providers. At the same time, companies are
increasingly being expected to manage these suppliers
in light of rising security threats, safety requirements,
financial vulnerabilities and other compliance matters
that could affect their operations. When you tack on
to that daunting challenge the inevitable threats of
natural disasters and extreme weather, it becomes
clear that supply chain risk is higher than ever before.
Supply management and procurement professionals
saw a pair of graphic examples of this level of risk in late2012. In September, a fire broke out at an apparel factory
complex in Karachi, Pakistan, tragically killing more than
300 workers—many of whom died because exit doors
from the shop floor were either inaccessible or padlocked,
blocking their escape routes. Officials at Western
companies were stunned when they learned that, just one
month before the tragedy, this same factory complex had
received a prestigious certification awarded by a global
non-profit organization. This certification—SA8000—is the
benchmark used by supply management professionals
at many Western companies as confirmation that their
overseas suppliers are in compliance with international
standards in a wide range of areas including health, safety,
child labor and minimum wages.1
Then in November, 2012, a similar fire erupted at
an apparel factory in Bangladesh, tragically killing
112 workers—again, many of whom were unable to
escape due to locked doors and windows. Journalists
on the scene who were literally sifting through ashes
and charred clothing labels identified a number of
prominent customers being supplied by that factory.
Supply management officials at those companies were
surprised on many levels, but the most stunning was
the discovery that the Bangladesh factory was even
manufacturing clothing for distribution in their stores.
Two prominent U.S. retailers caught up in the story­
—
Walmart and Sears—later reported that the factory
was not on their approved lists of apparel sources,
but authorized suppliers had apparently outsourced
the work in an attempt to reduce costs.1 In April 2013,
Walmart said it was responding by donating $1.6 million
to the Institute for Sustainable Communities (ISC)
to help set up an Environmental, Health and Safety
Academy in Bangladesh to train both workers and
managers, and that it has engaged Bureau Veritas, a
European testing and inspection company, to assess
factories and train workers on its behalf in Bangladesh.2

2. Of course, supply chain risk isn’t always as tragic and
is rarely as high-profile in nature. Virtually every day,
there is at least one supplier for any given company
that is dealing with a threat to their business. More
common and less publicized examples include a
power outage, labor unrest, cyber crime, local political
scandal or bank finance problem. These types of
potential supplier problems can fly under the radar of
most supply management professionals, but can lead
to major business issues that ultimately flare up into
supply chain disruption, legal issues or damages to
their reputation. By that time, it’s too late to prevent
the damage to the company.
Potential Impact on the Business
The potential impact of supply chain problems
is serious and measurable. In 2012, a team from
Accenture Management Consulting3 worked with the
World Economic Forum to explore key actions for
developing dynamic supply chains by building agile,
transparent and diversified systems. Their research
found that significant supply chain disruptions
reduce the share price of the affected company by
as much as seven percent, on average. Moreover,
a study published in 2012 by Harvard Business
School®4 confirms that supply chain disruptions can
have a material effect on company value. Given this
reality, it’s no surprise that 80 percent of companies
worldwide see better protection of their supply chains
as a priority, according to the Accenture research.
Unfortunately, this challenge of better supply chain risk
management is complicated by the fact that modern
supply chains are now truly global in their scope and
far more complex in their nature. The patchwork of
international, national and local regulatory and reporting
requirements makes it more difficult to fully assess the
risks associated with the failure of any single supplier,
but the reality is that these vulnerabilities must be
identified if they are going to be managed. The sudden
closure of a supplier that was presumed to be subject
to local government inspection and monitoring is no
less disruptive to the corporate supply chain than a
supplier known to have potential problems that had
already landed them on a global watch list.
In fact, those suppliers that are further removed
from the company’s immediate major suppliers pose
a major supply chain risk. A survey by the Business
Continuity Institute5 found almost 40 percent of
reported supply chain disruptions originated with
“Tier 2” and “Tier 3” suppliers. The lesson is that
supply chain problems can come from virtually any
supplier in the world at any time.
Emerging Technology Tools to Mitigate
Supply Chain Risk
These are clearly significant challenges with serious
potential business implications, but the good news is
that there is a new generation of tools in the market to
help supply management professionals better mitigate
risks to their supply chains. At the forefront of these
new tools are emerging business information solutions
that provide timely insight into potential problems at
specific suppliers.
Of course, the idea of monitoring suppliers with
business information services is not new. Traditional
sources of information used to monitor supply chain
risks include financial scores, background reports
and, in the past decade or so, occasional Google™
searches. While these methods still have value, they
are no longer sufficient on their own because they are
unable to uncover potential supplier business issues in
near “real time” and while they’re still in their infancy.
What is needed now is visibility into news and
information reported about suppliers in third-party
news media sources. This information can be used to
identify potential areas of concern with an individual
supplier before one of them flares up into a serious
supply chain disruption. For example, supplier
intelligence can identify risk factors such as legal
problems, compliance issues or government sanctions.
One recent study by LexisNexis6 sought to determine
whether this kind of market intelligence could be helpful
in identifying early warning indicators of a company
potentially headed for bankruptcy. The study looked at
23 failed companies and analyzed more than 90,000
news articles written about the companies in the run
up to bankruptcy. The conclusion was that market
intelligence was able to identify early warning signs
of risk—such as news stories mentioning insolvency,
bankruptcy, liquidation, dismissals or profit warnings—
in more than 80 percent of the sample companies
researched. In more than half of the companies
researched, the early warning signs were either “strong”
or “very strong” and warning signs could be clearly
seen six months before companies reached bankruptcy,
with the signs becoming more pronounced the closer
the companies got to failure. Notably, these early warning
signs of risk were not present in healthy companies.
This is serious business. While financial scores can be
helpful in making quick decisions about suppliers and
their financial health, financial scores are, by nature,
retrospective. By the time a company has stopped paying
their bills and their financial score has changed, it’s often

3. too late to mitigate. A supplier bankruptcy can quickly
translate into supply chain failure—and an average 50,000
companies a year file for bankruptcy in the U.S. alone.
The truth is that most companies just don’t have
proper access to the often obscure, international data
sources needed to foresee these kinds of supplier
risks. That makes it essential for them to obtain better
up-front business intelligence about news and trends
related to their supply chain risks around the globe—
and especially the lower tiers of that supply chain.
Putting LexisNexis SmartWatch to Work
LexisNexis SmartWatch® is a next-generation monitoring
solution for supply chain risk management. It provides a
visual dashboard and alerting tool that leverages a wide
range of market intelligence not available on the open
Web and draws from news sources not monitored by
other business information services.
SmartWatch is powered by the LexisNexis database,
which is a vast collection of premium-licensed content
that includes more than 26,000 global news sources.
The archive dates back 35 years, with millions of new
and updated documents loaded every day directly
from publishers. By focusing on authoritative sources
of news and business information, LexisNexis users are
able to avoid the “noise” and content credibility gap
that can be associated with content from the open
Web and quickly access relevant business information.
This includes news publications, industry and trade
journals, legal and regulatory publications, business
journals, analytical sources and robust information on
private companies beyond what they self-report.
The SmartWatch tool applies proprietary algorithms that
automatically prioritize search results to identify risks
most relevant to the business and then displays those
risks within a color-coded dashboard. This allows supply
management professionals to quickly scan their entire
supply chain and pinpoint problem areas for further
investigation and follow-up. Armed with this dashboard
and alerting tool, companies are better positioned to
anticipate and manage risk, monitor the supply chain
more efficiently, and gain better visibility and intelligence
into potential supply chain disruptions.
This use of leading-edge business information tools
makes a huge difference. In fact, a 2012 study by
Aberdeen Group7 found that organizations using thirdparty business information to monitor their supplier
base had 33 percent fewer suppliers who experienced
catastrophic failure. And remember the tragic story
about the apparel complex fire in Bangladesh? A quick
use of SmartWatch uncovered more than 50 stories
that in hindsight could have served as warning signs to
companies that there was a clear risk of major fires,
including a story published just prior to the fatal blaze
that reported a gap in the implementation of fire safety
plans in Bangladesh factories.
SmartWatch is at the leading edge of a new breed
of business information tools that are empowering
supply management professionals to bring more
discipline and focus to the crucial objective of
minimizing supply chain risk.
Start really seeing your supply chain
To learn more about SmartWatch
visit www.lexisnexis.nl
or call +31 (0)20 485 3456.
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